FORMS OF BUSINESS

ORGANIZATIONS April 1, 2015

VOCABULARY

business entity

business vehicle

legal entity

artificial person/ality

legal person/ality

corporate person/ality

HOW TO EXPLAIN SIMILARITIES AND DIFFERENCES BETWEEN BUSINESSES - ownership

- funding

- management

- profit

- liability

BUSINESS ENTITIES IN ENGLAND Sole proprietorship (sole trader, sole practitioner)

Partnership - general partnership- limited partnership- limited liability partnership

Company

- private limited company (Ltd)

- public limited company (PLC)

SOLE PROPRIETORSHIP

- a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business

- the owner is in direct control of all elements and is legally accountable for the finances of such business

- the owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts

- small in size, low turnover, few employees (if any)

ADVANTAGES AND DISADVANTAGES 1. advantages

- easy and inexpensive to set up (straightforward registration, simple record keeping)

- owner keeps all the profit after taxes

- easiest way to test the market

- complete control of business (you are your own boss)

2. disadvantages

- owner has unlimited personal liability for the business

- hard to raise money

- complete control of business (a heavy burden on your shoulders)

EXAMPLES

- 75% of all businesses in the UK are sole traders and 73% in the USA

- majority of these businesses are in the service sector (shops, plumbers, hairdressers, bed&breakfast hotels, real estate agencies…)

- self-employed professionals – bookkeppers, photographers, architects, translators, freelance writers…lawyers and doctors

GENERAL PARTNERSHIP

- a type of business entity that is owned and run by two or more natural persons called general partners

- each partner deemed an agent (has actual authority), each partner equally participates in the management

- joint and several liability for business debts, taxes and tortious liablity (as partnership and as individuals)

- profits shared equally unless otherwise provided for in the partnership agreement

- terminated on death, disability or withdrawal of one partner unless otherwise provided in the partnership agreement

- 8% of all businesses in the UK are general partnerships

LIMITED PARTNERSHIP

- a type of business entity that is owned and run by two or more natural persons

- only one partner is required to be a general partner (there can be more), others are limited partners

- general partners have all the rights and obligations as in a general partnership

- limited partners have limited personal liability (liable only on debts incurred by the firm to the extent of their registered investment), have no management authority, receive a return on investment from general partners

LIMITED LIABILITY PARTNERSHIP - a UK LLP is a corporate body (it has a continuing legal existence independent of its members)

- all partners are limited partners – personally liable only to the extent of their investment

- all partners have joint liability, but no several liablity

- LLP pays no company tax, profit is distributed to partners and they pay income tax as self-employed individuals

ADVANTAGES AND DISADVANTAGES - partners share profits, liabilities and decision making

1. advantages

- more partners, more capital

- less strictly orgnaized than a company, management is more flexible

- shared responsabilities and easier decision making

2. disadvantages

- agreement

- disagreements

- profit sharing

- higher taxes with higer income

- unlimited liability for general partners

PRIVATE LIMITED COMPANY (Ltd.) - also called private company limited by shares

- ”limited by shares” means that the company has shareholders, and that the liability of the shareholders to creditors of the company is limited to the capital originally invested

- it is a corporate body and has perpetual life

- advantages – limited liability, no minimum capital requirement, easier disclosure requirements (SHARES ARE NOT OFFERED TO THE PUBLIC)

- 90% of all small and medium-sized companies are Ltd.

PUBLIC LIMITED COMPANY (PLC) - appropriate for larger businesses where SHARES ARE intended to be AVAILABLE TO THE GENERAL PUBLIC

- a minimum share capital of £50,000, of which at least one-quarter must be paid up before the company can obtain its trading certificate from Companies House and start trading

- the only type of company which may raise capital by offering securities (shares or debentures) to the public

- public companies are subject to more stringent legal requirements than private companies on a wide range of matters, but especially in relation to share capital, directors and accounts

BUSINESS ENTITIES IN THE USA 1. sole proprietorship

2. partnership

- general partnership

- limited partnership

- limited liability partnership (not in all states, in some states only for lawyers, accountants, architects)

- joint venture (acts as a general partnership but for a limited period of time or one business venture)

3. limited liability company

- a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation

4. corporation

a) S corporation

- a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code

- do not pay any federal income taxes; instead, the corporation's income or losses are divided among and passed through to its shareholders

B) C corporation

- refers to any corporation that is taxed separately from its owners

VOCABULARY

an agent

capital

a corporation

a creditor

a share

a shareholder

turnover

THANK YOU!

companies House

company tax

corporate body

general partner

income tax

joint liability

joint venture

legal person

limited partner

natural person

partnership agreement

perpetual life

self-employed professional

several liability

share capital

sole practitioner

trading certificate

unlimited liability

to be accountable for something

to incur a debt

to invest capital

to own a business

to raise capital

to receive profits

to register a business

to run a business

to set up a business